Introduction
The global economic landscape for many developing countries has undergone significant changes in recent years. Factors such as slower growth, disrupted supply chains, reduced aid flows, and increased financial market volatility pose substantial challenges. These shifts are rooted in a fundamental restructuring driven by developed nations, altering the post-WWII economic and financial order.
The Post-WWII Economic Order
For much of the post-WWII period, the global economic and financial system functioned as a center-periphery structure, with the United States at the center. The US provided global public goods, led multinational policy coordination, and acted as a crisis manager according to widely accepted norms and standards. The ultimate goal was convergence, ensuring an increasingly integrated and prosperous global economy.
Challenges to the Post-WWII Order
- Distributional Concerns: Increasingly unstable distributional outcomes led to widespread alienation and marginalization among influential societal segments, causing the economy to subordinate itself to politics rather than influence it.
- Integration of Emerging Economies: The existing order struggled to incorporate rapidly expanding developing countries, notably China. Its massive economy with relatively low per capita income created persistent misalignment between internal development priorities and new global responsibilities, generating tensions that international governance structures have found hard to resolve.
- Transformation of the United States: The US evolved from a stabilizing force to a source of volatility. Factors contributing to this shift include the 2008 global financial crisis originating in the US, the use of tariffs against China in 2018, and increased reliance on sanctions within the payment system. Recent years have seen accelerated challenges in ensuring equitable global distribution of COVID-19 vaccines, instrumentalizing tariffs against allies and adversaries alike, dismantling the US foreign aid system, and persistent indifference toward humanitarian crises and international law violations.
Developing Countries’ Adaptation and Future Priorities
Despite the inherent shortcomings of the traditional center-periphery model, there is no immediate alternative. Nonetheless, developing countries have navigated the changing landscape with relative ease so far, largely due to political achievements such as strengthening macroeconomic frameworks and institutions over the past decades.
Key Political Priorities for Developing Countries
- Macroeconomic Stability and Addressing Structural Vulnerabilities: Developing countries must preserve macroeconomic stability while tackling structural and financial weaknesses, such as underdeveloped domestic financial markets, inadequate regulatory frameworks, and budget deficits.
- Strengthening International Links for Resilience and Agility: This requires coordinated, multi-year efforts to harmonize regulations, promote regional financial integration, and build trade infrastructure.
- Capitalizing on Innovation Opportunities: Developing countries should prepare to leverage new opportunities brought by innovations, from productivity improvements in traditional sectors to advancements in social sectors where human capital investment offers the highest returns. Artificial Intelligence (AI) holds immense potential to revolutionize healthcare, education, and agriculture.
- Reassessing Dollar Overweighting: Given the strategic importance of a subset of developing countries with high international reserves and significant dollar-based financial wealth, they must reconsider their traditional overweighting of US dollar assets. This process will be lengthy and complex, requiring careful asset decomposition, revised asset allocation methodologies, and new investment mindsets moving beyond conventional safe havens.
The Role of Multilateral Institutions
Multilateral institutions like the World Bank and regional development banks play a crucial role in assisting member countries in adopting this approach. To become trusted advisors, these institutions must enhance the collection and dissemination of best practices for emerging and evolving technologies that can improve health, education, and productivity outcomes. They should also intensify efforts to promote their adoption.
- Promoting Regional Links and Projects: Multilateral institutions should foster regional connections and projects that facilitate trade, expand transboundary infrastructure, and promote shared resource management. In a world increasingly marked by frequent crises, improving financing mechanisms for contingencies—such as strengthening risk distribution tools—is essential.
- Support for Fragile States: While crucial work in fragile states remains, the overwhelming evidence suggests that traditional development models face difficulties in countries with severe governance and security challenges. This area also requires more innovative thinking.
- Leveraging Emerging Technologies: AI and other emerging technologies offer developing countries an exceptional opportunity to forge new paths toward inclusive economic growth. However, seizing this historical opportunity is far from automatic. Without creating the necessary conditions for efficient and equitable dissemination of such innovations within their economies—especially in healthcare and education sectors—developing countries risk further lagging behind, deepening internal and cross-country inequalities, and accelerating global order fragmentation.
Conclusion
This commentary draws from Mohamed A. El-Erian’s insightful presentation at the Banco’s 2025 Annual Development Economics Conference.
The Author
Mohamed A. El-Erian, Rector of Queens’ College at the University of Cambridge, is a professor at the Wharton School of the University of Pennsylvania, Allianz advisor, and president of Gramercy Fund Management. He is the author of “The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse” (Random House, 2016) and coauthor (with Gordon Brown, Michael Spence, and Reid Lidow) of “Permacrisis: A Plan to Fix a Fractured World” (Simon & Schuster, 2023).
Copyright: Project Syndicate, 1995 – 2025
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